The world of online retailers is booming with websites like Amazon.com and eBay doing well despite the weakened economy. Amazon is particularly popular with consumers thanks to low prices and fast shipping.

The online retailer today, however, announced that it is buying online shoe seller Zappos.com for a deal valued at about $928 million. Amazon is purchasing Zappos in an all-stock transaction reports Reuters.

The purchase will get Amazon into the shoes and apparel business in a big way and signals what many have known for a while. Amazon's own endless.com shoe site has been unable to generate the sales needed to compete directly with Zappos. Analyst Jeffrey Lindsay called the deal an "outstanding acquisition."

Forrester Research analyst Sucharita Mulpuru said, "This is, in some ways, Amazon throwing in the towel on footwear because they've tried to compete with Zappos."

Zappos is most known for its fantastic customer service and its policy of offering free shipping on all shoes and free shipping on returns if customers don’t like the shoes.

Zappos CEO tony Hsieh said, "A big part of the reason why Amazon is interested in us is because they recognize the value of our culture, our people, and our brand. Their desire is for us to continue to grow and develop our culture (and perhaps even a little bit of our culture may rub off on them)."

Reuters cites an anonymous source as saying that Zappos earned $40 million before interest, tax, and amortization in 2008. Amazon will acquire all outstanding shares of Zappos and assume outstanding options and warrants. Zappos gets about 10 million shares of Amazon common stock in the deal. At a current closing price of $88.79 per share, the deal is worth about $927.9 million today.

Amazon says that the Zappos management team will remain intact and Zappos will continue to operate under its own brand and as a separate entity.

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Zappos is/was? very much like an online Costco in terms of return policies. Now only did they offer free shipping, but you could hold onto an item for up to a year before you couldn't return it anymore. I imagine this policy increased purchases as people who weren't sure about an item were more willing to pull the trigger. Sure some of those purchases were returned, but usually the challenge is getting a customer to buy something in the first place.